(Bloomberg) -- UBS Group AG credit strategists say the pace of lending following March’s banking crisis looks “concerning,” unless issuance of commercial and industrial loans, corporate debt and asset-backed securities improves soon.

Bank commercial and industrial loan growth looks on track to drop around 5% in the last three months of the year and about 10% in the first quarter of 2024, near levels associated with a recession, strategists led by Matthew Mish wrote in a note Tuesday. Corporate credit issuance also looks poised to drop. 

“The pace of overall US corporate issuance should improve to -3% by end-2023 using our latest forecasts, but still contractionary: risks are skewed to the downside,” the strategists wrote. 

Their models for the US high-yield credit markets signal default rates of around 6% to the low 7% range near the end of the year, and the strategists see junk bond and leveraged loan defaults peaking between 6% and 8.5% in early 2024, according to the note. The Swiss bank’s economists see a US recession in the third quarter. 

Spreads across investment-grade notes, high-yield bonds and leveraged loans are expected to widen further this year, the strategists wrote. They also see total returns of 4% for high-grade, 3% for junk bonds and 2% for loans. The strategists suggest prioritizing the sectors that performed best in March, including non-cyclical investment-grade debt and high-yield utilities.  

UBS is also guiding down its estimates for corporate bond issuance. Last November, it saw issuance of US investment grade bonds and high-yield bonds increasing 5% and 105%, respectively. Now it sees investment grade issuance declining 5%, and junk issuance increasing 55%. 

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